Clear Capital: ‘Distressed Saturation’ Rates Rise
Clear Capital, Reno, Nev., said nationwide, quarterly distressed saturation–the percentage of real estate owned and short sales to all sales–increased by 0.7 percent in August, from 15.4 percent to 16.1 percent.
The company’s monthly Home Data Index Market Report said while the industry is closer to historic, pre-2008 rates of distressed saturation, which hovered around 4 percent of all sales, increases in distressed activity leading into winter could shift momentum towards peak distressed saturation levels of up to 40 percent.
Alex Villacorta, vice president of research and analytics, said typically the market sees distressed saturation fluctuate with the seasons and increase in the winter season. The report noted the West’s and Midwest’s distressed saturation rates have exceeded that of the nation, increasing by 0.9 percent and 1.2 percent, respectively, while the largest gains in distressed saturation have occurred in the South, with a 1.5 percent increase from 18.6 percent to 20.1 percent. The Northeast was the only region to experience a decrease in distressed saturation, where rates dipped by 0.3 percent from 14.3 percent to 14.0 percent.
“Distressed saturation continues to be a challenge we face in today’s housing market,” Villacorta said. “Today’s ‘traditional’ housing market continues to be defined by distressed saturation levels. In Act One, at the start of the downturn, distressed properties were an albatross around housing’s neck. In Act Two, between 2011 and 2013, investors stepped in, buying, rehabbing and selling or renting distressed properties, which gave way to higher demand and rising prices. While the overall effect of higher rates of distressed saturation in Act Three of the recovery is unknown, one thing is clear; when it comes to housing, REOs and short sales are not a passing fad.
Villacorta said last week’s stock market volatility leaves the economy and housing “tenuous at best.”
“The last third of the year will reveal whether the housing recovery can withstand broader global volatility,” Villacorta said. “If investors pull out, oversupply of distressed inventory could bring us back to Act One. Or, a renewed source of distressed inventory could revive demand from investors and traditional homebuyers, alike, in an inventory-starved market. The driving factor will be whether traditional consumers will be willing, and more importantly, be able to participate.”
The report said for the past three years, distressed saturation in San Juan. P.R. has been steadily increasing, having grown eight percentage points, from a reading of 9 percent in 2013 to 17 percent today. Over the same three year period, nearly all major metro markets have experienced steady declines in distressed saturation. In terms of pricing, this near doubling of the saturation rate has corresponded with a rapid change in price declines from a yearly loss of 1.5 percent in 2013 to a yearly rate of decline of 10.2 percent today.
Clear Capital said the Midwest is the only region to see quarterly gains in price appreciation, nearly doubling from 0.4 percent to 0.7 percent. The Midwest still lags behind the West, which experienced declining gains of 0.1 percentage points, yet still continues to report highest quarterly growth at 1.2 percent. The South and Northeast appreciation rates remained stagnant, reporting 0.8 percent and 0.2 percent growth over the quarter, respectively.
The report said regional performance was mixed, with the San Jose and Detroit MSAs both reporting growth rates of 2.1 percent. Seven of the 15 top performing markets are located in the South, while four of the lowest performing MSAs are in the Northeast.
